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Board Members – Definition, Roles & Responsibilities Explained

Board Members are group of people, who can look over all the crucial aspects of the firm and maintain everything as per the firm’s objectives to match the best interest of the stakeholders.

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board members

Board Members: Defined

When the shareholders of a firm come together, decide, and elect a group of people, who can look over all the crucial aspects of the firm and maintain everything as per the firm’s objectives to match the best interest of the stakeholders, they are known as the board members.

Roles & Responsibilities of Board Members

roles and responsibilities of board members

As we now know who are the board members, let’s now understand what are their roles & responsibilities. Take a look at the following points:

Forming Firm Values

The values of a firm help in paving the path for its success. Every operation that takes place in a firm is run by values and all the workers in the firm have to abide by them.  So, the board members are the ones responsible to build the values and help them reach every worker so that their work has the reflection of those values.

Hire Senior Management

Another crucial responsibility of the board members is to hire senior management. But why? Because the board members only handle the company operations and don’t get deeply involved with them. So, there is a requirement for a team that can do the job. Therefore, a skilled group of individuals is selected, and a senior management team is hired, also comprising the CEO, the main operator of the company. The board members have to carefully judge each applicant and appoint the one that matches all the qualities.

Hire Independent Committees

Certain firm operations have independent sections under good corporate governance practices. There are several committees such as the compensation committee, audit committee, etc. These are known as independent committees and can be easily trusted by investors or shareholders. That’s why the members of the board are required to hire trustworthy committees that can correctly work on the assigned tasks.

Build Company Purposes

After the company values, the next thing that helps in paving the path of a firm’s success is its objectives. The board members must fix a firm’s long-term goals. These company objectives shape the future of the company and decide in which way the firm should operate so that it acts in the best interest of the shareholders. The first and the foremost objective of a firm is to expand the wealth of the shareholders and then comes other aims like affecting the environment.

Check Performance

Because the members of the board are the representatives of the firm’s stakeholders, they have to check the performance of the firm, its committees, and the senior management. If the board finds some gap, it can work to modify it accordingly. For instance, if they observe that the senior management team is not performing as it should, and isn’t rendering benefits to the shareholders, they can take decisions like changing the CEO, or editing the policies of the firm.

Read More: Certificate Of Incorporation

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Qualities of Good Board Members

Good corporate governance practices comprise certain qualities of a good directorial board. When analytics of a firm is considered, these qualities are a must-have for the members of the board. Why so? It is because a firm’s analytics pay attention to corporate governance and values its security at the same time. 

For instance, a firm could be beaming with profit, but there can be a situation where the management is facing gaps and it can be harmful to the firm in the future. So, here are the qualities of a worthy directorial board:

Independent

There are various reasons why a directorial board cannot generally be independent. Some are the presence of a CEO on the board, joining the board, personal connection with the company management, etc. By perfect means, at minimum 3/4th of the board of directors must be independent and should have a clear objective of working towards the firm’s success. Additionally, the firm CEO should be kept out of the team of board members.

Experience and Expertise

The members of the board should be skilled and should have an experience in the firm’s industry. This will help them in understanding what is causing the downfalls and what will help the company grow. Any board member with a lack of industry knowledge would not add anything to the company’s or the shareholder’s benefit. Expertise will help the members of the board from taking wrong decisions.

Principles & Morals

Having good principles and morals also come under the must-have qualities of a board member. Principles save any individual from being a part of bad deeds. Similarly, the members of the board with set principles will make sure that the firm also works according to them, and consequently pass it on to the firm’s workers. But it’s not simple to judge how an individual is. This can be studied by looking at the applicant’s old work.

Elections of the board

As the stakeholders elect the members of the directorial board to denote them in holding the firm’s decisions, they can also hold re-elections after some time. The elections are of two types,

  • Annual Elections: the re-election of board members each year
  • Staggered Elections: only some members are eligible for re-election

Usually, annual elections are chosen as per good corporate governance practices because then the stakeholders can’t elect anyone who’s not performing in their support.

Self-study

A skilled directorial board usually holds self-study meets where they review themselves as per their roles. For instance, the company representatives or the supervisors assess their performance in this meeting. They evaluate their mistakes and promise to serve better in the future. All the independent members are suggested to meet separately and judge everything from an external perspective.

Conclusion

The members of the board hold a crucial space in the economical governance sector of a firm. They are the agents of the stakeholders, possessing several responsibilities to make sure that the firm is acting in support of all shareholders. As discussed above, there are several qualities of board members which are tagged as “must-haves”. 

The independent members make sure that the firm’s management has less control over the decisions of the board. The members of the board are annually elected and also can be removed if not operating in their support.

FAQ’s

The roles and responsibilities of board members are to shape the firm’s values, recruit committees & a senior management team, establish firm objectives, and check the performance of the board members.

If you wish to become a member of the board, you must have ethics, have industrial experience, and should be independent.

The two main elections held to elect board members are:

Annual elections; annual re-election of board members

Staggered elections; only some members can be re-elected

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